Robert Roose - Director, IR Louis Hernandez - Chairman, CEO & President Ilan Sidi - Interim CFO & VP, Human Resources

Steven Frankel - Dougherty Hamed Khorsand - BWS Financials

Good day and welcome to the Avid Quarter Three 2016 Business Update. Today's conference is being recorded. At this time, I would like to turn the conference over to Director of Investor Relations, Robert Roose. Please go ahead sir.

Good afternoon. I'm Robert Roose, Director of Investor Relations at Avid Technology. Welcome to our Q3 2016 earnings call. With me today are Louis Hernandez, Jr., Avid's Chairman, CEO, and President; and Ilan Sidi, Avid's Interim Chief Financial Officer and Vice President of Human Resources. Slide 3 non-GAAP measures on our call today, we will be using both non-GAAP measures and certain operational metrics, both of which are defined in our Form 8-K and supplemental financial and operational datasheet available on our Investor Relations webpage. These non-GAAP measures are also reconciled with GAAP measures in the slide deck that accompanies this call, the tables to our press release and in the supplemental financial and operational datasheet. Slide 4 I would also like to remind you that certain statements made on this call are considered forward-looking statements within the meaning of the securities laws such as, for example, statements about expected future operating results and financial performance and the progress of our transformation. Forward-looking statements are inherently uncertain, not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Any forward-looking information relayed on this call speaks only as of this date and we undertake no obligation to update the information, except as required by law. For additional information, including a discussion of the key risks and uncertainties associated with these forward-looking statements, please see forward-looking statements section of our press release issued today as well as the Risk Factors and forward-looking statements sections of our 2015 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q, we filed with the SEC today, November 9, 2016. Copies of these filings are available from the SEC, the Avid Technology website, and our Investor Relations department. We've also added a supplemental presentation in an effort to complement today's narrative. We hope you will find that helpful. We will be recording today's call, which will be made available for a two-week replay. You may replay this conference call and access the supplemental presentation by going on the Investor Relations page of our website and clicking the Events & Presentations tab. Later, we will be conducting a question-and-answer session and instructions will be given at that time. Next slide, and now I would like to turn the call over to our Chairman, Chief Executive Officer, and President, Louis Hernandez, Jr. Louis?

Thank you, Robert. Hello everyone, I'm on Page 6 now on the presentation. The company produced mixed results for the quarter achieving guidance on operating expenses, adjusted EBITDA, and adjusted free cash flow, while below guidance for bookings and revenue. Operating expenses improved as a result of the continued execution of our efficiency program which benefits from the single platform approach. Operating expenses declined around $10 million on a year-over-year basis. Despite revenues coming in slightly below guidance, adjusted EBITDA met guidance on the strengths of the efficiency program execution. Adjusted free cash met guidance improving $28 million sequentially due to the cash impact of the prior efficiency efforts and strong cash management despite the booking shortfall. Gross margins remained relatively flat year-over-year and if you exclude the pre-2011 revenue amortization impact, they improved about 180 basis points year-over-year. Bookings and revenue were impacted by the transition of our storage product lines and ongoing volatility in the enterprise market. The excitement over the new NEXIS storage line initially launched for the non-enterprise market essentially has frozen the enterprise market as they deferred normal upgrades and renewals of the existing storage products until the enterprise level features were delivered for NEXIS. These enterprise level features were delivered in Q3 as expected. However, ongoing storage upgrade renewal had already been deferred. We expect to rebound in Q4 in this area. While we continue to sign meaningful enterprise deals, it remains difficult to predict the timing of these deals. I will provide some additional context for this dynamic shortly. While the transition of our -- in our storage suite pose challenges, we saw continued strong growth in key metrics of our Avid and Orad strategy that continues to resonate with our customers. This included growth in our enterprise users on MediaCentral platform which increased 43% year-over-year and the individual cloud enabled subscribers which are up 2.9 times compared to the prior year. Recurring revenue bookings as a percentage of total bookings increased to 39% from 28% a year ago and in the mid-teens when we started the transformation. At the same time, we continue to execute on our efficiency program. We have completed $67 million of the planned $76 million targeted for this year and on track to complete all the actions as expected. These strengths continue to position the company for more diversified revenue stream, allows us to participate in the higher growth areas that we've outlined before, and create higher recurring revenue with a leaner, more directed cost structure. We are adjusting guidance to account for the storage product transition and continued volatility in the enterprise market. Despite expected improvement in the storage performance in Q4, we don't believe it will be enough to make up for the Q3 shortfall. We do expect a return to normalized run rate for storage. We're also further risk adjusting the timing of large enterprise deals in our guidance essentially eliminating all but specifically forecasted transactions in our guidance. With three quarters to go, our transformation we believe is on track. We're targeting a clear more predictable financial model with normal conversion of bookings to revenue, revenue to EBITDA, and EBITDA to free cash flow. We're also planning to move from the end of the transformation to our next phase of growth. Those plans are well underway and with the platforms sufficiently mature with over 40,000 enterprise users at hundreds of major customers, we plan to cloud enable the entire suite. As we enter 2017, the shift to growth will be accelerated and we plan to realize additional efficiencies of greater than $30 million. Additional target efficiency gains a result of increased benefit of the shared services platform and a focus on growth areas. The benefits of an enterprise shared services platform is much of the prior style or development effort can be shared thereby creating scale in previously sub-scale product lines and that allows continued margin expansion and pricing flexibility. Let's go now to the next page, next slide. I wanted to briefly remind everyone of why we thought so critical to transform Avid and the strategy that we followed to address the industry's most critical challenges and our customer's greatest needs. Three years ago, you probably remember you're around that we launched the Avid Everywhere vision, we're in the middle of the restatement at the time and that vision led to the creation of the MediaCentral platform strategy. And if you look at the slide here in the upper left, the idea was to take this incredible brand that we have in distribution almost to 140 countries with the category creating a leading product that were in the slower growth areas but still very well known in the industry combine them on to a common services platform or services but and then adding additional products that allowed us to participate in the higher growth areas and then begin certifying third-party products into our ecosystem. The goal at the bottom was to expand our addressable market, to allow for a greater lifetime value per customer, and to begin to target bundling and packaging and pricing by tier, having primarily been focused on Tier 1, opportunistic on Tier 3, mostly resellers in Tier 2, and if you recall, it took us a few quarters to get the Tier 3 going now one of our fastest growing areas. To the right, the idea was to expand the market, to create new revenue streams, and increase the lifetime value per customer, and lower overall cost, therefore driving higher profit and cash flow. In the end, we want to have the best and most comprehensive suite of products for every step in the workflow from creating to distributing to optimizing where more of the dollars are being shed today. We combine this with MediaCentral, the industry's most open and tightly integrated and efficient platform with flexible pricing and delivery options from on-prem to cloud hosted to license to subscription all shaped by the pre-eminent client and user community that's grown from a standing start to around 8,000 members or so. While we've been going through our changes, the industry of course is undergoing its own changes and we believe that has accelerated and accelerated in a way that has made our strategy more obvious and in line with what we see clients going. However customer budgets are seeing pressure and the changes that are causing folks to reevaluate their overall strategy. I think the good news is the Avid Everywhere strategy we're finding it highly aligned solution set which is why we continue to sign the enterprise fields that we do. Let's move onto the next slide, you continue the progress in some of the key areas that underline the strategy platform sales as we talked about up 43% year-over-year. These again are to the largest media companies in the world predominantly. Cloud based subscriptions and digital sales continue to surge growing 2.9 times the prior year on cloud based subscribers, digital sales also up significantly. We mentioned recurring revenue is accelerating and that the efficiency goals are on track. Let's move onto the next slide. We want to -- I wanted to spend a minute on the two key drivers of the adjustments to our booking. You will see on Page 9 that while the transition of our storage product impacted the timing of the purchase decisions in Q3, we believe it will be a strong driver growth for both Q4 and beyond. If we broken the slide into two parts, what exactly has business transition and the impact and the timeline and how do we think that will impact our go-forward strategy. Many of you know we launched our new storage product NEXIS at Avid Connect, some of you were there before the NAB Conference in April, this was the first version of our next generation storage solution targeted for non-enterprise users. NEXIS is the state-of-the-art software defined storage solution, if you read about, it's fully cloud enabled, 300% more dense, 600% more capacity, and around 30% cheaper than our prior storage products, something we are really excited about, but we initially launched it only for the non-enterprise users. NEXIS has been very well placed in the market having one broad recognition including the Best of Show Award at NAB, our largest industry conference where thousands of companies exhibit their product. We sent several key deals on this product as well, U.S. Basketball team, the Miami Heat, Canadian Broadcast with CBC, Church of Latter-Day Saints, Italian Digital Satellites, Television platform Sky Italia, and many others. During the third quarter, what happened was some enterprise clients deferred certain upgrades of renewals purchases of our existing products which is what we had expected to happen as they waited for the release of the enterprise class NEXIS offerings. This was delivered in late Q3 and as we expected and we expected to drive improved growth in Q4. But we're still about two quarters behind on our total storage from what we expected because of this disruption. Our enterprise clients had initially expressed skepticism of moving to a new and unproven platform in fact as to our commitments to continue to offer the prior storage offering even after the enterprise class functionality became available. I think what happened with the excitement over NEXIS caused more interest than we expected at the enterprise level and thus the delays in the ongoing renewals and upgrades as they decided to wait for the NEXIS enterprise version to be available. We do not believe we are losing these customers in the storage area. Because of the integrated nature of storage with our other product, we would have to be made aware clients were shifting to competitive products because of required integration. That integration is highly proprietary and not only have we not received such notification beyond the normal run rate, we believe there is pent-up demand building due to the increased level of content being created in our client. We see no change in the targeted market size for this opportunity. Let's move on to the second major component of why we decided to adjust our guidance and this has to do with the enterprise market and the large opportunities that we're pursuing today. Large enterprise deals represent a very attractive opportunity but they're hard to predict and it's something that is increasing interest by our clients that were in several discussions today. The volatility in the enterprise market also impacted the bookings. While we signed several important enterprise deals, which I'll discuss here in a moment, the timing of these transactions remain very hard to predict. While we believe that a potential upside from a number of large enterprise deals in the pipeline, we have decided to de-risk our guidance by applying a much heavier risk adjustment to many of these opportunities. We believe the industry's transition is moving in our favor of this strategy and as an organization, we need to respond by creating better alignment to serve this market and these types of deals formalizing things like enterprise licensing strategies those doesn't have to be negotiated on a one-off basis, augmenting our go-to-market strategy, improving our deployment and delivery for large enterprise accounts, so we can price things quicker for the services end, and we're also answering the demand to deploy more of our solutions in the cloud. Let's move on now to some examples of some of these enterprise strategies at work, let's take a couple of minutes here on the Rio Olympics, I was very proud in the third quarter to be able to attend the Olympics along with several of our staff in a services capacity, it was really inspiring and not for the athletes, it was the amazing community that worked night and day there for six to 12 months to bring the story to their community. We were in the IBC with the rest of the broadcasters working around the clock to make sure that the story was told around the world. Over 25 broadcasters use Avid as their core component for their content production workflows to cover the games. Every aspect of Avid's product was represented. In fact it was the ninth consecutive time that NBC and Avid had a partnership beginning with the 2000 Games in Sydney. Now the interesting thing is everything was on display there from the six or so folks to where are you running the Cuban delegation two channels 24 x 7 with no backup team to NBC which was the largest. And I think NBC really encapsulated the challenge of the industry David Mazza and Darryl Jefferson did an unbelievable job of bringing this to light. What they had to do was they reduced their staff significantly on the heritage linear television side where the revenue model is very proven and lucrative however the viewership is dropping and they knew that. They invested quite heavily in additional staff on the digital side where they had almost 100 million unique users, quite a significant improvement but that's a less proven or less attractive economic model luckily they had Affinity and saw subscriber growth and this is the transition the industry is going through. How do we shift from a proven economic model to the future way to access the audience in a less proven or less attractive model also probably has depressed somewhat by digital only players who are currently rewarded by acquisition of viewers not monetization. And that's the challenge that many of our clients have and of course, we also have clients like Netflix and Hulu which actually uses to a larger degree which we see they don't have to make that kind of adjustments or just capitalizing on the distribution. So this navigation I think reflects the challenge that the folks have. But NBC did an outstanding job with their transition. They actually had every minute, every second of the Olympics was available digitally online it's incredible experience. And that's an example of the products that are on display. They used MediaCentral platform and MAM system enterprise-wide using Avid Everywhere as the centerpiece to their entire technology set. Let's move on to the next slide, few other enterprise deals, I'll just mention a couple. RTL you may know is a huge pan-EMEA customer of ours, 59 television stations, 31 radio stations in 10 countries, billions in revenue and this deal included an upgrade to the platform, entire news, and extended support agreement. RTVE Spain, TVE Spain is a state-owned public broadcaster; very large client also bought into the platform did some significant upgrades in expanding their news operations. So those are just a couple of examples, I'll keep moving on. I also wanted to announce our highlights something else that happened in the quarter. We announced the first Avid Cloud Managed Services Partner and you may know dock10 established to help the UK government move media assets and technology infrastructure from London up to Manchester is an extremely successful and they are the first authorized certified reseller of Avid's entire platform in the cloud, it's early days but this is a sign of things to come, when you think about what's next for Avid. So those are some of the highlights for the quarter. And before I turn it over to Ilan to go over the financial results and the guidance, I wanted to update you quickly on the CFO search. We've continued to see some incredible candidates. I'm cautiously optimistic we will be able to fill this role before too long. We're in late stages with several very qualified candidate and they're coming at the right time because it's towards the end of the transformation, I think they can have a huge, they see a huge economic upside if we can deliver on our plan. So the good news is that Ilan, who I'm going to turn it over to you, as you know, has a strong financial and operational background. He was a public company CFO before and as a result, we've had the ability to take our time and really find the best person for the job and we believe we will be able to find that person and announce them before too long here. So with that, let me turn it over to Ilan. Ilan?

Thank you, Louis, and good afternoon everyone. Please turn to Slide 15 for an overview of our financial performance for the third quarter of 2016. As Louis mentioned, our third quarter for non-GAAP operating expenses, adjusted EBITDA, and adjusted free cash flow were in line with guidance, while bookings and revenue were below the guidance range. And now we will review our key financial metrics for the quarter. Bookings for the quarter came in at $94.8 million on a constant currency basis and $89.5 million on as reported basis, which was below our guidance range and down year-on-year. Bookings were impacted by the product transition in our storage business and continued volatility in the enterprise markets. This volatility in our large deals for storage and other enterprise products impacted our bookings growth which in turn impact revenue and adjusted EBITDA. However, we continue to see strength in bookings related to our cloud enabled division and other digital channels which Louis mentioned before. I will provide more color on bookings in a moment. Non-GAAP revenues were $119 million for the third quarter which was below the low-end of the guidance range by $1 million or a bit less than 1%, were down year-on-year by $18.4 million or 13%. Of the $18.4 million year-on-year that declined $8 million was related to lower pre-2011 revenue amortization and an additional $3 million was related to the elimination of pre-support for our Media Composer and Pro Tools software which was started in Q3 2015. Sequentially, Q3 non-GAAP revenue was down $15.4 million represent an 11% decline. Of the $15.4 million, $5 million of this growth is related to revenue amortization decline for elimination of free software support and lower pre-2011 revenue. While these declines were expected, the relatively modest mix revenue from guidance was due to lower storage of bookings and the changing mix of bookings to recurring revenue. As more bookings shift to recurring revenue, it creates a short-term headwind on revenue but over time will make the business much more predictable. On our non-GAAP gross margins as percent of revenue was 65.1% which is down 30 basis points year-on-year and down 200 basis points sequentially. If you normalize for impact of the pre-2011 revenue amortization, our gross margin as a percent of revenue improved by about 180 basis points year-on-year, which we view as relatively strong performance. Non-GAAP operating expense for the quarter was $58.4 million, which was within our guidance range. Our non-GAAP operating expense decreased almost $10 million year-on-year and over $6 million sequentially. As a reminder, an important goal of our transformation was to create a leaner, more scalable cost action. As we continue to expand the scale of our platform, it enables more opportunities for talent alignments, facility rationalization, and improved product profitability. As I will discuss in a moment, we are scheduled to execute the majority of the $76 million efficiency gains we have identified by year-end. And we believe, we can realize an additional $30 million or more of annualized cost savings starting in 2017 as a result of our shared platform approach. Adjusted EBITDA of $22.9 million was within the guidance range for the quarter and was down year-on-year and sequentially. As we expected, adjusted EBITDA both year-on-year and a sequential perspective was adversely impacted by the drop in revenue amortization related to pre-2011 revenue and elimination of free support for our Media Composer and Pro Tools software which has adverse revenue impact of $11 million and $5 million respectively. Adjusted free cash flow was the use of $2.6 million which was within our guidance range and was a dramatic improvement from the $30 million free cash flow used in the second quarter of 2016. The sequential improvement was driven by continued cost efficiency, seasonal spending, and improved collection. On year-on-year basis, the improvements in free cash flow was largely driven by lower spending associated with our cost efficiency program. And despite the slowness in storage and enterprise deals, we were able to achieve a 75% reduction in our adjusted free cash flow year-on-year. And now I want to provide a bit more color on booking performance for the quarter. Q3 bookings for the quarter were approximately 10% below our guidance range and were down year-on-year and sequentially. We continue to see strength in our Tier 3 business and our direct digital channel performance were up 13% year-over-year. And the move to cloud enabled subscriptions to remain strong with over 50,000 subscribers at the end of the quarter. The two most significant challenges for Q3 bookings were the delay in storage bookings as we transition for newer product and continued volatility in the enterprise market. We believe many large enterprise customers they further do normal storage upgrade cycle anticipating the release of the new products, new storage products. As Louis mentioned, with regards to large storage deals, we don't feel like we are losing orders but that the customers are taking more time in their decision making process. It will become very evident if customers were to move to new storage as this will require most significant integration work with the rest of the product suite. Customer endorsed mix it is the state-of-the-art, software defined storage solution, fully cloud enabled with higher density and higher capacity at the right price. We expect meaningful sequential improvement in storage bookings during the fourth quarter. The volatility in the enterprise market is related to purchasing decisions that are less predictable as customer increasingly review and scrutinize their strategy and technology investments in light of the budget pressures and the need to expand on new technology in areas such as digital distribution. Avid is well-positioned to help solve these challenges and we don't believe we are losing these customers, but customers evaluation of solutions are taking more time that we have historically experienced. Similar to our last update, I want to share that we remain on track for our $76 million annualized savings goal and believe we move to the last stages of the transformation. We will be able to implement meaningful additional cost savings. These additional savings could exceed $30 million on an annualized basis and would include continued talent alignment and additional opportunities to rationalize facilities as we continue to realize the full benefit of the shared platform strategy. The benefit of enterprise shared services platform is that much of the prior style or development effort can be shared thereby create the scale in previously sub-scale for the clients allowing continued margin expansion and pricing flexibility. As a reminder, these savings are relative to our run rate for mid-2015. We have already implemented $67 million of the annualized savings or almost 90% of the $76 million target, as a result of the actions we have taken through September 2016. We are on target to implement most of the remaining efficiency gains related to $76 million program in Q4 so that the cost savings will be largely reflect in our full year 2017 results. As you can see in the non-GAAP operating expense chart, we have made significant progress in lowering our cost structure. Since the cost saving agreement by platforms we have been able to improve our time to market and service delivery while lowering the overall cost structure. Moving to Slide 17, I would like to provide an update of some of our balance sheet metrics. At the end of Q3, we have total liquidity of approximately $53 million including $48 million of cash. Our accounts receivable balance was $40.9 million on September 30, 2016, which was down from the second quarter by about $4 million with higher collection. Our DSO was 31 days at the end of the quarter. Inventory was up sequentially by $1.7 million to $55.6 million with an inventory turn ratio of 3.2 times. We have relatively light product shipments in Q3 and expected a meaningful reduction in our inventory levels in the fourth quarter as we accelerate product shipments, preliminary related to our NEXIS storage and Console product lines. Revenue backlog was $437 million on September 30, 2016, versus the $465 million reported at the end of Q2. Revenue backlog comprised of deferred revenue plus backlog of 10 customer orders we have yet to shape fulfill or bill. The sequential decrease in revenue backlog was driven by the reduction in our deferred revenue balance of $27 million. Of the sequential decrease, $5 million was related to pre-2011 revenue and the additional $12 million was related to elimination of free software upgrade support. Our backlog was up $48 million year-on-year to $197.2 million and up about $100 million since the beginning of the transformation. This shows we are advancing towards a more current business model with greater visibility of revenue in future periods. Our long-term debt at the end of Q3 was $188 million and we are in compliance with the bank covenants. The covenants requires a leverage ratio defined as the ratio of consolidated total comp indebtedness to consolidated trailing 12 months of adjusted EBITDA. This ratio declines over time. The September 30, 2016, required ratio is 5.4 to 1, and at the end of the quarter our actual ratio is 2.1 to 1. So we are well within the covenant. By the end of 2017 the ratio will drop to 3.3 to 1. As we continue to execute our strategy, we expect to see bookings growth moving forward which we combine with our additional cost efficiency opportunities should allow us to stay within the covenants of our debt. As we have discussed due to slower than expected bookings in storage for the clients and volatility in the enterprise markets, we have updated our guidance for the full year. However let me start with guidance for the fourth quarter. On Slide 18 we have presented our Q4 2016 financial guidance. We expect bookings on the constant currency basis to be between $115 million and $145 million as compared to the $95 million that we reported in Q3. We expect bookings to increase $18 million to $48 million sequentially to between $107 million and $137 million or 20% to 53% on as reported basis as compared to the $90 million in Q3 2016. I would also remind you that $201 million of bookings in the fourth quarter of last year included a very large multiyear bookings with Sinclair, which makes Q4 a difficult comparison year-on-year. Non-GAAP revenue is expected to be between $105 million and $120 million as compared to the $119 million reported in Q3. Non-GAAP operating expenses of $56 million to $62 million are expected to be relatively flat sequentially and down approximately 13% to 21% from last year. We expect Q4 2016 adjusted EBITDA to be between $9 million and $16 million as compared to $23 million in Q3 2016 and $17 million reported in the fourth quarter of last year. I would note that if you normalize for pre-2011 revenue and eliminating free support, adjusted EBITDA will be improving both year-on-year and sequentially. Finally, we expect to move towards breakeven for adjusted free cash flow in Q4 with a range of $5 million use to generation of $5 million. On Slide 19 we have provided the full year guidance which is simply year-to-date actual performance plus the Q4 guidance I just provided. We have lowered our full year guidance for bookings for 2016 to reflect the storage product transition and continued volatility in the enterprise market. We have also taken a more conservative view of the numbers, number of enterprise deals which we will close in Q4. Constant currency bookings are expected to be between $415 million and $445 million as compared to $562 million that we reported in 2015. On a as reported basis, bookings range is expected to be between $391 million and $421 million as compared to $538 million in 2015. The reduction in bookings guidance also impacts our guidance for revenue, adjusted EBITDA, and adjusted free cash flow. Our non-GAAP revenue is expected to be between $502 million and $517 million as compared to the $506 million reported last year. Non-GAAP operating expenses for the year are expected to be in range of $247 million to $253 million as compared to $270 million we reported in 2015. As a reminder, 2015 expenses only included a half year of Orad. We expect 216 adjusted EBITDA to be between $100 million and $107 million which is about almost double the $55 million we reported in 2015. Finally we expect free cash flow for 2016 to be use of $37 million to a use of $47 million for the year. And now I will turn it back to Louis for some closing remarks.

Thanks, Ilan. Now to wrap things up, I'd like to make a couple of comments about the end of the transformation. First for the balance of this year, what we're going to be focused on is executing our plans that we've just laid out. This will include leaning into the growth areas that have shown great momentum; we plan to continue to add MediaCentral platform users, continue to grow our cloud enabled subscribers, and leverage our powerful digital direct distribution which seems to be going pretty strongly. We will also continue to execute on our efficiency program close that out and begin to launch the additional cost saving opportunities that we've identified. While we've signed some important deals in the storage area NEXIS, our storage business is a couple of quarters behind where we wanted it to be. We have now rolled out the critical solutions for the enterprise customers and we plan to capitalize on that very aggressively. Given the growing importance of the large enterprise deal opportunity for our business and the complexity of this business, we are dedicated to making adjustments to succeed here, including streamlining our processes, refining our messaging, aligning our organization, formalizing pricing practices, and improving service and delivery so we can cover these large deals more effectively and more predictably. I'm going to move on to the next slide. We had previously mentioned that we tied the end of our transformation to three primary events that we garner with you before. We have completed the rollout of the non-marketed products, we are about 90% through the announced $76 million efficiency program, and the amortization of the pre-2011 revenue will end by the second quarter of 2017, the targeted end of the transformation, and it should produce a much clear view of our programs performing. Additionally, we're targeting greater than $30 million in additional efficiency opportunities which together with the other parts of our strategy should allow us to deliver the diversified more predictable revenue model and that standard conversion from bookings to revenue, revenue to adjusted EBITDA, and adjusted EBITDA to free cash flow. In addition to these metrics as we line out for you before, the product maturity is also on track. So if you think about the other piece of the operational strategy, it was so that the Avid Everywhere vision was mature enough to actually then lean into the growth areas away from our Heritage products and really into the areas that are growing more aggressively and lean into those more aggressively. That will require some additional changes organizationally but we believe we're also on track to complete that initial vision. You've seen an uptick in the platform, the applications, the cross-selling et cetera and the final components to that will be finished, so we can now concurrent with the end of the transformation shift to really just trying to sell more of that, more rapidly and I believe the market is coming towards us in terms of our strategy and so what we need to do is put in a better position to capitalize on those investments that we have made. The last thing of course is this all results in a more straightforward calculation, so and conversion to a financial express. So we think we're on track to doing those things. Let's move to the last slide now from a product and technology perspective, I mentioned that we've made tremendous progress on the product side and operational side of our transformation, besides all the organizational changes, the switching out of management team, and all the other things we have built the most open integrated platform, you've seen the growth on that platform, we have added individual products, we have added certified partner applications launched the cloud based subscription, and digital services, we have aligned the talent and facilities to match the business opportunities and these achievements we think have positioned us to respond quickly to the market and now that they have to manage more cloud based solutions. And if you look at what we've done so far, we first launched our cloud enabled subscription versions just toward the Artist Suite and so the couple of products we've launched for cloud based subscription is what you're seeing that 2.9% year-over-year increase and that's mostly new users. Now if you think about the opportunity and there is a lot of companies who put their point solutions in the cloud, we can turn on the entire suite, you are talking about 10, 20, upwards to 30 different applications all going into the cloud over time, in addition to the platform. We announced our first cloud managed services partner, who will be the first one to demonstrate the availability of this through a third-party. We also demonstrated and hosted the MediaCentral platform and all the applications at the IDC Conference overwhelming response for customers and partners there. The next step of course is to complete that transition so that our clients can purchase either on-prem, in the cloud, on a license or in subscription across the entire platform. And that will really mark the end of the transformation from a product perspective where we're simply then try and get as many people in the world to use this platform that we have created. In tandem of course we are preparing the operational elements to support this growth at launch including pricing plans, go- to-market alignment and partnerships, and this is what is possible within reach we think with Avid Everywhere. Finally as a wrap up, just to recap the quarter, we met a majority of the guidance metrics but bookings and revenue were below expectations due to the transition of our storage products and continued volatility in enterprise markets. Our key growth initiatives, our indications, the customer adoption of Avid Everywhere see continued very strong momentum, we have adjusted full year guidance for couple of reasons, some lost ground on the storage products as certain enterprise customers held back the normal upgrades and renewals waiting for functionality on the enterprise levels which has since then released, and we have greater risk adjusted the timing of the large enterprise deals. As we close the end of the transformation, we believe we are on track. We believe, we will be able to deliver an attractive economic model and plan to be ready for full cloud deployment of MediaCentral and total Avid Everywhere suite products and services that will assure in our next phase thus marking both economically, operationally, and from a business model perspective the end of this transformation that started three-and-a-half years ago. And with that operator, we are happy to entertain questions. Operator?

Thank you. [Operator Instructions]. And we will take our first question from Steven Frankel of Dougherty.

Steven, are you there?

Louis, can you hear me?

I can hear you now, Steven. We couldn't hear you before.

Okay. So lots on pack here. Let's start with the $10 million miss in bookings. Can you parse that between NEXIS delays and enterprise deals that aren't closing?

Sure, Ilan take it away.

Yes, sure and so we're not giving guidance -- specific guidance by product line, we're having in our Investor Relations datasheet you have the spread between the split of our bookings been product and services and you can see that that we have less bookings on the product side and it's mainly related to the storage product that have been resubmitted up in Q3.

That's not the question I'm asking. I'm asking bookings have come in lower and you have lowered bookings guidance. How much of that is due to storage business, how much of that is due to these enterprise deals so generalized deal slippage? And let's define what's the point you're talking about in enterprise deals, are these Sinclair like subscription engagement or you just talking about large direct deals in general?

Yes the changing guidance two-thirds of it is for these two items. The storage piece just to be clear on what it is, is we announced NEXIS | PRO if you remember for the non-enterprise clients, clients -- enterprise clients expressed that they weren't interested in being the early adopters there, they wanted to see that working for as much as a year according to our conversations with them. So we launched NEXIS | PRO first and expected the ongoing renewal and upgrade business for ISIS to continue. That basically dried up on us especially as we got close to the launch of NEXIS Enterprise which got launched in the last month of Q3. And so we inadvertently froze out that market. Now those clients couldn't really go anywhere else if you know the way our technology works because it would be very difficult to run a separate platform storage provider with the old ISIS platform. We also would have had to be notified and we didn't see any such trend. If you look at the demand we're seeing now for NEXIS Enterprise, we believe we are going to see a bounce back. However we're not going to make up for the shortfall in Q3 and we continue to expect ISIS orders and renewals in Q4 which we don't think we will recapture in total and that was a big piece of the adjustment. The second big piece making up the two-thirds of the adjustment to the guidance had to do with the enterprise deals and yes there is Sinclair like deals which we have signed but we've signed more in the $2 million to $4 million range as opposed to larger than that which we had expected or I shouldn't say we expected, are possible -- were and/or possible. We won't sign the size of the deals that we did with Sinclair mainly because very few people are going to be signing 10-year deals with us but the annualized run rate is a common discussion going on right now. Complicating this is a lot of budgets are being compressed because of the transition, I described like what NBC Olympics went through not everybody has the tools that NBC Olympics had to navigate successfully. So we're just seeing a lot more scrutiny over these items. Now the good news is the dollar value is significant that's also putting under scrutiny but the unit economics is very favorable and few people can offer the unit economics. If you think about an enterprise price, if you're paying a dollar per seat for Pro Tools and dollar per seat for Media Composer let's say $10, $20 in that case for 10 users to use both but you have 30 people in your shop, very few people can say why don't we just charge you $15 or $30 in total and everybody can use it. You have to have a platform type approach in order for that to work successfully and multiple products and we obviously have I think now the broadest most complete product offering compared to any competitor that I'm aware of, we just have not sophisticated yet enough the bundling price quickly and that's what I meant, we need to commercialize this and have it in the price book, it's there right now we're negotiating these one-off and there is several of them going on and between our delivery and professional services pricing and our overall licensing pricing to make sure, we don't turn a dollar into a dime into the opposite, it just takes longer than we had expected. And on the other side, the clients these are big contracts and they're also not used to doing those kind of deals with us, so those two combined can cause us to significantly de-risk any of those deals. The only deals that are in guidance now are specific ones that we believe we will close this quarter, everything else we essentially taken out of guidance.

Okay. Let me switch gears, you have $5 million of borrowing capacity left, pretty ugly Q4 free cash flow guidance and historically Avid doesn't generate free cash flow till the back half of the year. Is anything changing the business, so that you could get the cash flow generation in early 2017 or should we assume business hasn't changed that much yet, so you just tell you're going to kind of bump along with very limited capacity for the next few quarters?

I would say, I'm going to take the first shot at it and then I'll let Ilan comment but the biggest change is there is still a significant amount of the efficiency program that we have already executed that won't start showing up in Q1 and Q2 of 2017. And therefore your historical models have to factor that in, I think would you do factor those in; you'll have more comfort in where we might end up. Obviously that'll be laid out in our 2017 guidance. The additional 30-plus-million, we've identified is a reflection of the efficiency of the platform and also to give us more comfort that we won't have a covenant issue in the latter half of the year.

And where has headcount reductions gone, where is headcount today, where was it a year ago and where might it be by the middle of next year?

Yes, it's probably down around Ilan correct me around 10% for the year, I would -- is that correct?

Yes.

Yes, okay, around 10% it's been around 60% plus of changes, so it felt a lot more dramatic around the company because we've moved a few hundred people to Asia, we've moved a big chunk of people to Europe, the balance are talent to where the revenues are and also lower in the process our cost structure and so it's been around a net change of 10% a big piece of that is used to be every silo and we're step gale in many of our product categories now share tools and that just dramatically reduces the cost structure from a development perspective. And also from a service perspective, we're now able to follow the Sun and provide a higher level of service at a low cost, so that's what the headcount is and I think you'll continue to see mainly driven by our function you'll see adjustment in two areas, facilities reduction there is still more opportunities, the platform as it gets more and more mature we're basically going up the stack and we want the applications to be very lean and light especially as we're moving to the cloud and having that cloud option. And I think the third thing is we're increasingly focusing on our higher growth, higher profit products and that's going to be reflected in our cost structure.

And one more and then I want Ilan to answer the free cash flow question as well. So this was the third consecutive quarter if my notes are correct where you had an essence of pulled down of Pro Tools revenue. I remember discussion last quarter that said that was kind of Q1 and Q2 was it you kind of recognized everything that you were supposed to recognize, where did this $12 million come from and how many more million are left for future quarters?

Absolutely, let me ask Ilan to answer to that as well, so it has come down significantly but no it's still remember that was originally supposed to be over multiple periods and we pulled because of the accounting we required to pull it in but let me let Ilan give you a --

Right the understanding at the time was you pulled it in and therefore it wasn't going to come down anymore but in essence it's coming down in bigger pieces rather than being spread over 12 quarters, it's come down in three big chunks, how many more chunks are left?

Correct, you have it right summarize it, it's getting smaller but let me let Ilan give you an update.

Exactly. So we're going instead of amortizing and recognizing this revenue over longer time we're going to recognize -- we are recognizing this revenue in a shorter time so that we have the big effect. This effect is going down, in Q3 we recognized one-plus-million of revenues related to this and is going down in the next quarter, it will go down and 2017 will be much sequentially down.

How much will that be in Q4?

It will be around $5 million.

Okay. And then how much is left after the $5 million?

We have --

Small amount.

Yes, very small amount.

It's a very small amount after that; he's looking at the amount.

Yes, so it's very, very small amount.

Okay. So let's go back to the free cash flow question given you have $5 million of wiggle room left what should give us confidence that you can hold free cash flow less than that for the next couple of quarters?

So first want to emphasize our guidance for the fourth quarter is that we are moving towards breakeven of adjusted free cash flow in Q4. And to your question for 2017, so in 2017, we will going to have more advantages that we didn't see in the past on the additional cost savings that we have on the $76 million program that we already did and going to complete till the end of the year. So currently have the full benefit of that starting from 2017. As we discuss we are going to have additional efficiency program of at least $30 million annualized savings and we would plan to start that as early as possible in 2017. So we're going to gain for that. And we also anticipate to have the first quarter strong collections given the high bookings -- the expected high books in Q4.

Okay. And do you anticipate that bookings should begin to grow once we get into 2017, it's been a long time other than the Sinclair deal that you have been able to grow bookings on a year-to-year basis on a reported basis.

Hi, Steve this is Louis. Yes, we think that the two lines start to inflect right around the transformation time in terms of bookings growth. And obviously we're not giving guidance for 2017 but we do believe that we will transition to a growth company which is why I've been using that term. What we're doing to do now is get everything operationally ready so we can fully capitalize that means our go-to-market strategy has to be adjusted, the way we comp people has to be adjusted, our pricing, our structure, whole bunch of things we're working on to get ready for that and that should happen sometime in 2017.

[Operator Instructions]. And we will move next to Hamed Khorsand of BWS Financials.

Hi just want a follow-up on most questions here. I know you said commentary about customers not giving you any information about moving off but what are the chances that new customers are just not using Avid internally anymore. They're just ordering competition just letting whatever they have that's Avid related just sit there on their networks?

Yes, well I think that's low, this is Louis. I mean the field all the time and like it or not clients are not afraid sometimes their belief is telling me when they moved away from us. So there is not any social economic or political pressure say people not to tell us what's happening in fact sometimes it's the opposite. If the -- if you are using one of our other products and paying for it and that's what we are referring to and using storage and you decided to use another storage, you would have to engage it to connect that storage to our other products and unfortunately or fortunately on that platform that's nearly impossible, very difficult. You could decide to shutdown all of Avid and be paying us maintenance bill and we would see that you are -- you wouldn't be calling us anymore and/or engaging with this and we don't see any of those trends at all and so those are the two things. I think with NEXIS what we misread is that we knew it's very compelling, it's much more dense, it's much more capacity for a lower price, it's fully a software defined and cloud enabled which we can demonstrate and we did demonstrated at IDC. However our large clients were pretty clear that they're not interested in moving off an extremely stable market leading product with ISIS anytime soon and I think the fact is they or we just misread what their interest would be. I frankly think it's the cost benefit that drove people to be more interested in NEXIS sooner than they originally told us because many of my clients and again I'm in the field pretty much confident, are we experiencing real compression in budgets even after it's been approved for the year, they are coming back and getting and it's basically for us, we're talking amortizing revenue. Now if you look at the new clients let's look at Netflix for instance one of our larger clients who uses even higher percentage of our products, they're in a totally different mode, they are in expansion mode, and there is several digital-only providers who are in expansion mode with us now and so that's the nice thing about it. We can serve both sides of the equation. In the case of NBC for example while they reduce their heritage investment on linear, they increased their digital that was still with us as a same platform. So anyway that that's where we get some of the comfort and I guess the other comfort in mind, I have is if you knew my client they're not afraid, they like I said, they're very willing to tell me when we're not doing something wrong and they're always happy to tell me when these are threatening to or actually leading us and that's not what we’re seeing here.

I'm just trying to get to a understanding of there's a $120 million of revenue being saved off to a guidance that you provided in Q3, sorry in Q2. So that's well of revenue and I just can't imagine that was all storage related. So I'm just trying to understand that what were you guys assessing as far as actual having contract in place and orders by Q3 and Q4 that just never happened because it can't just all be the storage, storage was never just this kind of big product for you.

Hey thanks for the question. Yes, the revenue -- I just clarify revenue is actually $33 million to $40 million I think $47 million. I think you referring to bookings but two-thirds of the adjustment is for storage and is for the large enterprise deals where we had had that included in the guidance before. So on the storage side it really is a pretty simple calculation we expected the ongoing renewals and upgrades, no new businesses, renewals and upgrade primarily of ISIS to continue up until we had NEXIS Enterprise available which is available in the third month of Q3. Even after that based on the research we've done in our discussion to client which has been numerous we expected ISIS to continue in fact many clients wanted us to guarantee support for some time that they thought it was too risky. That essentially dried up and now they just want to wait on NEXIS and we believe you'll see a rebounding Q4 but we don't believe we will able to recapture that rebound plus make up for all of Q3 and the continued ISIS we expected in Q4 and that's why -- that's the storage component. On the large enterprise deals we are still in active negotiations all the time and I think we make it worse because we don't have a programmatic way for these and we're, we have a lot of these discussions going on. And so as I mentioned earlier by the end of the year by the time we get to the end of the transformation we really need to have in the price book pick pricing for, enterprise pricing for each product when you bundle the product, you save even more on a unit basis, when you add duration, you save even more. And we're just not there yet, so these are individually complex negotiated deals for company that is not used to enterprise delivery, in the way we're talking about it. Enterprise what we're used to is hundreds of Media Composers connected with wires not an application that connects all the components and therefore the installation and delivery is more like an IT-based delivery tool with the work breakdown structure and normal project management so we're just projecting that. So those are taking longer and I think it made worse by the client side has a lot of economic pressure, so they're evaluating. What they like about it is weaken in the large enterprise deal offer a whole bunch of products at a lower unit cost, so you give a little more to me, you kick out of the vendors but you save more money just like Sinclair and we are talking about deals that are the same annual value as Sinclair just usually not as longer duration as Sinclair was. Those are real conversations, we're having right now, it's just too hard for us to predict that we decided to de-risk the entire amount unless they're specifically called out to close this quarter and essentially eliminating all the upside in that in our guidance and those are two items represents just over two-thirds of the entire adjustment to our guidance.

Okay. And my last question is given the circumstance around storage and demand you're having, why was it that in the third quarter you were doing these bundle promotions with NEXIS?

The bundle promotions for NEXIS were on the non-enterprise products, so that was the product that we announced in April. We didn't expect much from that product; it was low end product that we really weren't that competitive in historically. We thought it was a good place to start. We thought we would sell into competitive situation such as an open platform, so for instance if you're using Adobe historically you couldn't use our storage, now you can with NEXIS | PRO it's called Pro being for the individual professional or small workgroup but it is not designed for the large enterprise user. And so we're still trying to promote that for that new market for us which is the low-end, our base business is storage is really at the high end enterprise feed and that's what we inadvertently froze out for a couple of quarters and it really came to rouse in Q3. And I think it's because people heard that was about to hit the market which it did it hit in the last month of actually very towards the end of Q3.

And ladies and gentlemen, this does conclude today's question-and-answer session. I would now like to turn the call back over to Mr. Roose for any additional or closing remarks.

And ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect.